March 9, 2001
In an agreement with 31 states and the District of Columbia, Reader's Digest Assn., Inc. will pay more than $6 million to settle charges by 31 states that its sweepstakes promotions were misleading to consumers.
About $4 million of the settlement will go to 7,500 "high-activity" customers who spent more than $2,500 annually in 19998, 1999 or 2000, according to California Attorney General Bill Lockyer. The company will also pay $2 million in attorneys' fees and investigation costs.
Reader's Digest publishes the world's most widely-read magazine. It claims a readership of more than 100 million readers per month for its 48 editions in 19 languages.
It's the fifth in a series of settlements with major sweepstakes houses since 1999, when the state attorneys general held public hearings on sweepstakes competitions. Other companies that have settled include American Express Publishing Corp., Publishers Clearing House, Time Inc. (now AOL Time Warner) and US Sales Corp.
Reader's Digest sends out million of sweepstakes entries each year, offering subscriptions to its various magazines, books and tapes. Lockyer said that under the settlement, Reader's Digest has agreed not to exaggerate a contestant's chances of winning and not to suggest that a contestant is "about to become a winner."
"Consumers will be able to clearly see that buying products will not improve their chances of winning," Lockyer said.
Federal and many state laws require that sweepstakes must treat all entrants equally -- and that entrants may not be required to purchase anything or be present at a specific place and time.
Or, as New Jersey Attorney General John J. Farmer Jr. put it: "You don't have to pay to play."
Last year, a Reader's Digest spokesman said that about 47% of new subscriptions for its magazines resulted from sweepstakes promotions, down from 89% the previous year.
In a statement, Reader's Digest said it has reduced its reliance on sweepstakes but conceded it could see "short-term declines in response rates."
"Reader's Digest has established a reputation for integrity and earned the trust of millions of customers over the past 78 years by delivering quality products and excellent service," Michael Brizel, the company's General Counsel, said.
States covered in the settlement are:
- District of Columbia
- New Hampshire
- New Jersey
- New Mexico
- New York
- North Carolina
- North Dakota
- Rhode Island
- South Carolina
- South Dakota